Greenspan defends legacy, jabs Hill

Alan Greenspan, former chairman of the Federal Reserve, continued his crusade to defend his legacy, saying he was right 70 percent of the time during his 21 years in public service.

Greenspan told a panel investigating the collapse of financial markets that banks should be required to hold more capital and traders more collateral — the "only" steps that would help soften the blow of a future crisis.

Story Continued Below

Policies that the Fed put in place were not enough to "stop the surge of subprime lending," he said, but things are better than they would've been without the board's guidance.

Greenspan has consistently sidestepped the panel's attempts to force him to admit to specific mistakes. He called retrospection about what-ifs a "futile activity."

The crux of Greenspan's argument was that in addition to higher capital and collateral requirements, stricter "enforcement against misrepresentation and fraud” is necessary so that losses are restricted to investors who “seek abnormal returns.”

Greenspan also took pointed shots at Congress, saying that there was "remarkable" pressure on the Fed to enhance lending. He said there was "a lot of amnesia" emerging from Capitol Hill among lawmakers calling for stricter regulation. There was "fairly broad consensus" that increased home ownership was a positive trend.

The committee is beginning three days of hearings on securitization and regulation of subprime lending. On Wednesday, it will hear from former Citigroup risk executives. Robert Rubin, the former chairman of Citigroup and Clinton administration treasury secretary, will testify Thursday, as will the comptroller of the currency.

Greenspan, in his prepared remarks, continued to say that the impact of regulation on financial markets is limited. But, he said, the rules in place did fail to regulate a market leading, many believe, to a meltdown of the economy.

“Even with the breakdown of private risk management and the collapse of private counterparty credit surveillance, the financial system would have held together had the second bulwark against our crisis — our regulatory system — functioned effectively,” Greenspan said in prepared remarks. “But under crisis pressure, it, too, failed.”

But Brooksley Born, a panel member and former chairman of the Commodity Futures Trading Commission, questioned whether the Fed, under Greenspan, failed in part because of his negative view on regulation.

“The notion that somehow that my views on regulation were predominant and effective as influencing the Congress is something you may have perceived. It didn’t look that way from my point of view,” Greenspan replied, in his most defensive answer of the morning.

“I ran my office as required by law and there are an awful lot of laws I would not have constructed in the way they were constructed, I enforced them nonetheless,” Greenspan said.

Greenspan also took a shot at the idea of "too big to fail" — the notion that some financial institutions cannot be allowed to collapse because of the damage it would cause to the broader economy. He told the committee in prepared remarks that the doctrine "can not be allowed to stand" because it encourages banks to take on too much risk.

The 84-year-old Greenspan did offer a sliver of criticism of the Fed, saying that the structure of the New York Fed "has to be thought through."

At about 11:45, as panel chairman Phil Angelides was announcing that he was wrapping up the segment with Greenspan, the power in cavernous Rayburn hearing room went off. The lights shut down and Greenspan remained sitting at the witness table.

With the curtains open, and light pouring through the floor-to-ceiling windows behind the panel, the chairman asked the question many wanted to ask. Angelides asked Greenspan if he thought there was a failure of regulation in the financial system.

With the microphones off, little was audible from the former chairman, and Angelides said that Greenspan gave a "lights out" performance.